Aer Lingus preliminary results operating profits grew by 40.7% in 2012

Transcription

1 Aer Lingus Group plc ISE: EIL1 LSE: AERL Aer Lingus preliminary results operating profits grew by 40.7% in 2012 Dublin and London, 6 February 2013 : Aer Lingus Group plc ( Aer Lingus, the Group ) today announced its unaudited preliminary results for the year ended 31 December million unless otherwise indicated Change 2 Passengers mainline operations ( 000s) 9,653 9, % Average yield per passenger ( ) % Revenue 1, , % Operating costs (excluding exceptional items) (1,324.2) (1,239.2) (6.9%) Operating profit before exceptional items % Free cash flow (24.9) 402.0% Profit before tax (51.9%) million 31 Dec Dec 2011 Change 2 Gross cash % Debt % Note: the consolidated financial statements are presented in Euro rounded to the nearest thousand. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. 1 Free cash flow represents cash generated from operating activities less net capital expenditure (purchases of fixed assets exclusive of finance lease raised less proceeds from disposals) plus or minus net interest received/paid. 2 Sign convention favourable/(adverse) 2012 financial and operating highlights Operating profit, before exceptional items, of 69.1 million (2011: 49.1m), up 40.7% with strong operating margin of 5.0% (2011: 3.8%) Total revenue up 8.2% with capacity growth of 0.5% Total passengers carried on Aer Lingus services in 2012 (incl. Aer Lingus Regional and the Washington Dulles Madrid codeshare with United Airlines) of 10.8 million represents the highest number flown in a single year by the Group We have increased our load factor by 2.1 points to 77.7% Market share ex-ireland (incl. Aer Lingus Regional) increased by 2 percentage points from 41% to 43% Greenfield programme completed. Annualised cost savings target exceeded by 7.4%. ( million in annualised savings compared to targeted 97.0 million) Strong balance sheet; gross cash up 1.5% to million as at 31 December Debt down 7.9% to million. Subject to shareholder approval, the Board recommends paying an increased dividend of 4 cent per share for 2012, which follows a 3 cent per share dividend for 2011 paid in July 2012 Free cash flow up million (402.0%) to 75.2 million Strong yield performance; long haul up 9.6%; short haul up 3.8% and total yield up 7.0% Profit before tax is 43.8 million lower than 2011 due to exceptional costs of 26.5million incurred in 2012 with the 2011 result benefitting from an exceptional credit of 37.2 million. This was partially offset by the favourable year on year movement of 20 million in underlying operating profit. Q4 operating loss, before exceptional items, of 17.4 million (2011: loss of 17.6 million) 2012 strategic highlights Agreed 10 year extension of the successful Aer Lingus Regional franchise with Aer Arann which carried over 1 million passengers in 2012 and contributed positively to Aer Lingus operating result Equity investment in a new aircraft leasing vehicle alongside two other parties to acquire eight new aircraft for lease to Aer Arann on commercial terms

2 Interline and codeshare agreement with Etihad Airways providing access to Australia, Asia-Pacific, the Indian subcontinent and the Middle East through the Etihad network; updated codeshare with United Airlines increasing network opportunities between both parties Interline agreement with Air Canada to deliver an enhanced travel experience between Ireland and Canada Preliminary agreement with Virgin Atlantic to wet lease four Airbus A aircraft for an initial three year operating period on domestic UK services between London Heathrow, Aberdeen, Edinburgh and Manchester Consolidation of wide body hangar maintenance at our main hub in Dublin Christoph Mueller, Aer Lingus CEO commented: 2012 was an excellent year for Aer Lingus. We made an operating profit for the year which is 40.7% above Our operating margin, as a measure of our competitiveness, has increased to 5.0% with free cash flow of 75.2 million. Improved processes and service delivery are reflected in a record on-time arrival performance of 88% and a high customer satisfaction level. At 31 st December 2012, the number of forward passengers booked on our services was ahead of the figure booked at the same time in 2011 and in January 2013, we recorded the single highest day of revenue booked in our history. I firmly believe that this result, representing our third consecutive year of profitability, validates our value carrier business model and shows that our strategy is delivering a leaner, more efficient and profitable airline, to the benefit of customers, shareholders and staff. Therefore we are proposing to pay an increased dividend of 4 cent per share for Aer Lingus continues to gain profitable market share from legacy and low cost carriers by offering a combination of competitive intra- European point-to-point services, a profitable long haul business focused on our key markets in Europe and the USA overlaid with competitive connections worldwide with our partners in Europe, the Americas and the Middle East. In 2012, we continued to build our network of strong industry alliances, completing agreements with Etihad and Air Canada. We have also extended our franchise agreement for Aer Lingus Regional services with Aer Arann. Aer Lingus will return to higher capacity growth in 2013 adding one aircraft on the North Atlantic and four short haul aircraft in cooperation with Virgin Atlantic out of London Heathrow. This represents an increase of 5.0% in our available seat kilometres. We will also fly one Airbus A330 aircraft during the next two winter seasons, with an option for a further one, on behalf of a major European tour operator which will improve aircraft utilisation in the low season. We will also continue to invest in our IT infrastructure, enabling Aer Lingus to deliver superior customer service and convenience while driving down overall costs at the same time. In 2013, the management team will remain focused on creating demonstrable value for our shareholders. After the successful delivery of the Greenfield restructuring programme in 2012, resolving the complex pension legacy and further efficiency improvements across the organisation will drive the management agenda in A presentation for shareholders and analysts will be held on 6 February 2013 at 9am. This will be available on a live audio webcast at Contacts Investors & analysts Derek Abbey, Aer Lingus Group plc Jonathan Neilan, FTI Consulting Tel: Tel: derek.abbey@aerlingus.com jonathan.neilan@fticonsulting.com Irish media Sheila Gahan/Brian Bell, Wilson Hartnell Public Relations Tel: sheila.gahan@ogilvy.com; brian.bell@ogilvy.com International media Victoria Palmer-Moore/Matthew Fletcher, Powerscourt Tel: victoria.palmer-moore@powerscourt-group.com; matthew.fletcher@powerscourt-group.com Note on forward-looking information This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Group will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority. Note on unaudited operating and financial information This Announcement contains unaudited operating and financial information in relation to the business of Aer Lingus extracted from the following sources: (1) management accounts for the relevant accounting periods; (2) internal financial and operating reporting systems supporting the preparation of financial information; and (3) internal non-financial operating reporting systems. These management accounts are prepared using information extracted from accounting records used in the preparation of the Group s historical financial information, although they may also include certain other management assumptions and analyses.

3 Financial summary (unaudited) Revenue Year ended 31 December Change (i) million million - Passenger revenue - Short haul fare revenue % - Long haul fare revenue % - Retail revenue % - Total 1, , % - Cargo revenue % - Other revenue % - Total 1, , % Operating costs - Fuel (358.6) (288.7) (24.2%) - Staff costs (266.7) (260.5) (2.4%) - Airport charges (295.3) (275.7) (7.1%) - Other operating costs (403.6) (414.3) 2.6% - Total (1,324.2) (1,239.2) (6.9%) Operating profit before net exceptional items % Net exceptional items (iii) (26.5) 37.2 NM (ii) Operating profit after net exceptional items (50.6%) Net finance expense (1.8) (1.9) NM (ii) Share of loss of Joint Venture (0.2) - NM (ii) Profit before tax (51.9%) Income tax expense (6.5) (13.2) NM (ii) Profit after tax (52.1%) EBITDAR (iv) % Passengers carried ( 000s) (v) 9,653 9, % Average yield ( ) % Retail revenue per passenger ( ) % Available seat kilometres (ASKs) (v) (million) 18,685 18, % Passenger load factor (v) 77.7% 75.6% 2.1 pts 31 Dec 2012 million 31 Dec 2011 million Change Gross cash % Debt % (i) (ii) (iii) (iv) (v) Sign convention: favourable/(adverse) NM: Not meaningful See Note 4 to financial information for details EBITDAR: Earnings before interest, tax, depreciation, amortisation, aircraft rentals and net exceptional items Based on FLOWN passenger numbers and excluding Aer Lingus Regional Services operated by Aer Arann and the Washington Dulles Madrid codeshare service operated in partnership with United Airlines. These figures differ from those published in Aer Lingus monthly traffic statistics during 2011 which were based on BOOKED passenger numbers.

4 Traffic and selected KPIs Statistics Year ended 31 December Three months ended 31 December Change Change Passengers carried ( 000s) * Short haul 8,674 8, % 1,956 1,971 (0.8%) Long haul % % Total 9,653 9, % 2,204 2, % Revenue passenger kilometres (RPKs) (million) * Short haul 9,393 9, % 1,973 2,055 (4.0%) Long haul 5,130 4, % 1,305 1, % Total 14,523 14, % 3,278 3, % Available seat kilometres (ASKs) (million) Short haul 12,464 12,509 (0.4%) 2,733 2,791 (2.1%) Long haul 6,221 6, % 1,588 1, % Total 18,685 18, % 4,321 4,354 (0.8%) Passenger load factor (%) (flown RPKs per ASKs)* Short haul 75.4% 74.6% 0.8 pts 72.2% 73.6% (1.4 pts) Long haul 82.5% 77.6% 4.9 pts 82.2% 74.5% 7.7 pts Total 77.7% 75.6% 2.1 pts 75.9% 74.0% 1.9 pts Average yield ( )* Short haul % % Long haul % % Total average yield % % Aer Lingus Regional passengers carried ( 000s) 1, % % * Based on FLOWN passenger numbers and excluding Aer Lingus Regional Services operated by Aer Arann and the Washington Dulles Madrid codeshare service operated in partnership with United Airlines. Q summary million unless otherwise indicated Q Q Change 1 Passengers ( 000s) 2,204 2, % Average yield per passenger ( ) % Revenue % Operating costs (323.6) (301.0) (7.5%) Operating loss before exceptional items (17.4) (17.6) 1.1% million 31 Dec Sept 2012 Change Gross cash (8.3%) Debt % ¹ Sign convention: favourable/(adverse)

5 Chief Executive s statement Introduction 2012 was an excellent year for Aer Lingus. We made an operating profit for the year which is 40.7% above Our operating margin, as a measure of our competitiveness, has increased to 5.0% with free cash flow of 75.2 million. Improved processes and service delivery are reflected in a record on-time arrival performance of 88% and a high customer satisfaction level. At 31 st December 2012, the number of forward passengers booked on our services was ahead of the figure booked at the same time in 2011 and in January 2013, we recorded the single highest day of revenue booked in our history. I firmly believe that this result, representing our third consecutive year of profitability, validates our value carrier business model and shows that our strategy is delivering a leaner, more efficient and profitable airline, to the benefit of customers, shareholders and staff. Therefore we are proposing to pay an increased dividend of 4 cent per share for Aer Lingus continues to gain profitable market share from legacy and low cost carriers by offering a combination of competitive intra- European point-to-point services, a profitable long haul business focused on our key markets in Europe and the USA overlaid with competitive connections worldwide with our partners in Europe, the Americas and the Middle East. In 2012, we continued to build our network of strong industry alliances, completing agreements with Etihad and Air Canada. We have also extended our franchise agreement for Aer Lingus Regional services with Aer Arann. Aer Lingus will return to higher capacity growth in 2013 adding one aircraft on the North Atlantic and four short haul aircraft in cooperation with Virgin Atlantic out of London Heathrow. This represents an increase of 5.0% in our available seat kilometres. We will also fly one Airbus A330 aircraft during the next two winter seasons, with an option for a further one, on behalf of a major European tour operator which will improve aircraft utilisation in the low season. We will also continue to invest in our IT infrastructure, enabling Aer Lingus to deliver superior customer service and convenience while driving down overall costs at the same time. In 2013, the management team will remain focused on creating demonstrable value for our shareholders. After the successful delivery of the Greenfield restructuring programme in 2012, resolving the complex pension legacy and further efficiency improvements across the organisation will drive the management agenda in Significant turnaround since 2009; successful completion of three year Greenfield programme millions Operating profit/(loss), before net exceptional (81.0) items There are five key elements of our new strategy: Pricing and yield management: demand led capacity deployment with strongly increased yield performance and the re-capture of market share in an overall declining market Multi-channel distribution strategy: maximising use of the web with distribution costs of only 3.4% of revenue. Social media launch in 2012 Open network architecture: enabling multi-partner approaches for different geographical regions and significantly improved global network reach to and from Ireland Focus on customer: On Time Performance (OTP) Arrivals within 15 minutes 77% 83% 88% i. On time performance of 88% delivered in 2012 ii. 96% of our customers were satisfied with their overall Aer Lingus experience and 97% of customers will probably fly with us again based on past experience (source: 2012 Ipsos MRBI research for company) iii. Other initiatives that have and will enhance customer service include the move into Terminal 2 in Dublin, moving into the Jetblue Terminal 5 in JFK, becoming the anchor tenant in the new Terminal 2 at London Heathrow as of 2014, increased product offering for onboard or pre-booked sales and rolling out of wi-fi access across our long and short haul aircraft Competitive cost position: the annual value of savings under the Greenfield restructuring programme was million, which is equivalent to 7.9% of total 2012 operating costs Our partnership model, driven by our neutrality, has significantly contributed to the business. In 2012, approximately 23.0% of our total long haul passenger traffic either connected from, or to, our partner airlines services (2011: 18.5%), while interlining revenues and passenger volumes continue to grow, increasing by 8.8% and 5.5% respectively in 2012 compared to Passenger traffic trends % Variance Inter-line revenues ( m) % Inter-line passengers ( 000s) % In July 2012, we were pleased to pay our first dividend since our 2006 IPO and paid a total of 16 million for 2011, representing 3 cent per share. Our revised dividend policy, which we announced in May 2012, indicates our intention to pay a dividend for those future years in which we make a profit, provided that payment of such dividend is appropriate and prudent in the context of our financial position, strategic objectives and prospects. For 2012, the board will recommend the payment of a dividend of 4 cent per share, (2011: 3 cent per share) reflecting strong trading in 2012 and our confidence in the future of the business. Commercial developments in 2012 In 2012, we announced a number of new or expanded partnership agreements and commercial developments: The Aer Lingus Regional service, operated by franchisee Aer Arann, entered into its third year. In March 2012, under an extension of the franchise agreement, Aer Lingus and Aer Arann announced that all Aer Arann routes would be operated under the Aer Lingus Regional brand, thereby increasing the range of destinations offered by Aer Lingus. The economics of the turbo prop aircraft operated by Aer Arann are more suitable than jet aircraft for certain routes such as those in the Regional network. In addition to franchise fees receivable from Aer Arann, we also benefit from increased traffic from UK destinations connecting to transatlantic services in Dublin and Shannon. Following on from the expansion of the Aer Lingus Regional franchise agreement in March 2012,

6 Aer Lingus and Aer Arann agreed a 10 year extension of the Aer Lingus Regional franchise agreement. The Aer Lingus Regional franchise continues to deliver significant network and financial benefits for Aer Lingus. We also made an equity investment in a new aircraft leasing vehicle which will acquire eight new ATR aircraft over the next 18 months and then lease these eight aircraft at commercial rates to Aer Arann. This agreement is outlined in more detail below. In July 2012, we announced that we had reached commercial agreement with Etihad Airways regarding interline and codeshare arrangements. From September 2012, we now co-operate with Etihad Airways on flights between Abu Dhabi and Dublin and also have full access to market flights across the Etihad network beyond Abu Dhabi to points including Australia, Asia-Pacific, the Indian subcontinent and the Middle East. We are now discussing opportunities to co-operate with Etihad in areas such as joint procurement for mutual benefit. In May 2012, Etihad announced that it had acquired a 2.99% stake in Aer Lingus. In November 2012, we signed an updated codeshare agreement with United Airlines ( United ). This updated agreement deepens our relationship with United and provides increased network opportunities for both parties. Aer Lingus and Air Canada entered into an interline agreement in September 2012 which is expected to provide our customers with a more seamless travel experience between Ireland and Canada. In December 2012, Aer Lingus announced a preliminary agreement, subject to contract, with Virgin Atlantic Airways Limited whereby we will wet lease four Airbus A aircraft to them on ACMI (aircraft, crew, maintenance and insurance) terms. The proposed agreement is for an initial 3 year period. The four Aer Lingus aircraft are planned to commence operations on 31 March 2013 and it is intended that the aircraft will be deployed, in Virgin livery, on short haul services connecting London Heathrow with Manchester, Edinburgh and Aberdeen. After set up costs, we expect a profit margin in steady state similar to our core short haul operation. In December 2012, we also entered into a preliminary agreement, to start in late 2013, to operate an Airbus A aircraft for the next two Winter seasons, with an option for a further one, on behalf of a major European tour operator. This will enhance our asset utilisation in the traditional low demand winter season. The enhanced codeshare with United Airlines for the operation of the Washington-Dulles to Madrid route came to an end in October 2012, after three years of successful operations. The A330 aircraft used for the enhanced codeshare operation will be redeployed on the mainline Aer Lingus long haul route network for the 2013 Summer schedule and is expected to generate a profit equivalent to that earned on the enhanced codeshare operation. During 2012, we announced a decision to relocate our A330 hangar maintenance operations at Shannon to Dublin with effect from January This will improve the efficiency of our maintenance operations by consolidating our hangar activities at our Dublin hub. The costs of the restructuring have been included within exceptional items in our 2012 financial results. Investment in aircraft leasing vehicle and extension of Aer Lingus Regional franchise We acquired 33.3% of the equity in a leasing company (the Joint Venture ), the purpose of which is to acquire eight new ATR aircraft over the course of the next 18 months. This vehicle will lease these eight aircraft at commercial rates to our Regional franchise partner, Aer Arann. Each of the equity investors in the Joint Venture holds an equal one-third shareholding. The aircraft purchase will be financed through a combination of equity and debt financing. Our initial equity is USD$14.2 million with a maximum commitment of USD$17.7 million. We believe that this asset investment will support our Regional partner, Aer Arann and represents an attractive opportunity which will generate a good financial return for Aer Lingus over the term of the leasing agreement. Airport changes in 2012 On 28 October 2012, we commenced flying from George Best Belfast City Airport with business routes targeted as part of this change. For example, we now operate 48 weekly flights from Belfast to London Heathrow / London Gatwick. Also during 2012, Aer Lingus and JetBlue agreed that Aer Lingus will move the Group s New York flight operations from Terminal 4 at John F. Kennedy International Airport to JetBlue s acclaimed Terminal 5 at JFK with effect from early The move will improve the transatlantic passenger experience and reduce connection times. Medium Term Growth Plan As I have already noted, our business plan and strategy has been proven to work and in 2012 we have begun to target the next phase of our development, with a goal of delivering profitable growth for our shareholders over the medium term. To that end, I see the Aer Lingus business as having three main components: Aer Lingus mainline operations Aer Lingus Regional services Business and investment opportunities, including wet lease or ACMI ( Aircraft Crew Maintenance and Insurance ) opportunities In respect of each of the above three areas, I will now outline the opportunities that I believe Aer Lingus can exploit to achieve growth in the coming years. Aer Lingus mainline Aer Lingus mainline comprises our core short and long haul services connecting Ireland with Europe, the USA and other destinations east and west via our partner airlines. I see our mainline business developing as follows: We will grow our Transatlantic business selectively with our home base of Dublin becoming a hub for transfer traffic to and from the US. We will continue to add partnerships to grow the number and range of destinations available to Aer Lingus passengers. Aer Lingus has considerable experience and strength at London Heathrow. In 2014, we will move to Terminal 2 at Heathrow and this modern facility will provide us with a considerable opportunity to provide short haul feed from Ireland to our partner airlines operating long haul services at both this terminal and other terminals in Heathrow. London Heathrow remains a focal point in our strategy. Despite not obtaining any slots from the remedy package related to the IAG acquisition of bmi, Aer Lingus remains interested in the outright purchase or lease of slots in order to enhance our feeder capabilities in London Heathrow. I believe that ancillary revenue is an area with considerable opportunity for us to exploit. We have been particularly active over the past two years in developing our ancillary revenue offering, with the introduction of our fare family pricing structures, our Sky

7 deli on-board catering offering and more recently our moves toward pre-order meals and onboard wi-fi access for our passengers. We have a number of initiatives in various stages of development which I am confident will allow us to achieve additional discretionary spend per passenger. In order to compensate for weakness in our core Irish market and also the UK market, we will continue to push for sales on both ends of our routes (i.e. inbound and outbound). We are already seeing the benefits of those marketing efforts reflected in our long haul booking profile whereby approximately 60% of our long haul bookings are now generated in the US market. In addition, 47% of our total bookings were sourced from outside Ireland in Aer Lingus Regional Aer Lingus Regional services, operated in conjunction with our partner Aer Arann, have performed strongly over the past two years. In 2012, over 1 million passengers flew on Aer Lingus Regional services, an increase of 33.2% year on year. In respect of Aer Lingus Regional services, we will: Continue to pursue the Regional franchise model without compromising Aer Arann s independence Encourage the addition of new routes and services where the economics of such developments make commercial sense Work with Aer Arann to more closely co-ordinate our schedules with the aim of providing better connectivity options for our customers, a move which would benefit ourselves and Aer Arann The Joint Venture, as described earlier, will enable Aer Arann to re-fleet, ensuring services are being deployed using modern, efficient aircraft and offering a better and more consistent experience for Aer Lingus Regional passengers. Business and investment opportunities Our preliminary wet lease agreement with Virgin Atlantic ( Virgin ) will allow us to combine the cost advantages associated with a start up operation and our long standing experience and capabilities of operating at London Heathrow to offer domestic UK services on behalf of Virgin. The agreement represents a development opportunity for Aer Lingus to assess the viability of pursuing an ACMI model with other carriers to grow our profitability. The ACMI model provides a lower risk opportunity for growth than organic expansion. We will look for further scale opportunities with other carriers for us to deploy our experience and cost efficient flying model on their route networks. The increase in available seat kilometres will have a positive effect on our unit costs, allowing us to spread our fixed costs across a broader base of flying. This will indirectly support our pricing capability and flexibility in both our core short haul business and the new business of flying on behalf of other carriers. In the absence of new aircraft deliveries for the next three to four years, we anticipate strong annual cash generation. Not only does this give us the ability to withstand the crises and disruptions to which the industry is prone, but it will allow us to invest to improve and grow our business. We see opportunities to develop Aer Lingus, and create value for shareholders, by making selective investments in three principal areas: Increased ownership mix of our existing fleet Slot ownership particularly at Heathrow in support of our core business, and Upgrades to our customer facing IT systems, particularly if this supports our drive to enhance ancillary revenues and make it easier for passengers to connect to offline destinations through our partnerships and alliances Taking these components together, I firmly believe that we have the ability to create sustainable growth in the face of the weak economic backdrop. We are well positioned to benefit from any recovery in our core market. Nonetheless, enabling this growth requires us to focus particularly on two key issues: 1. Managing our cost base and 2. Resolving the remaining legacy issues In respect of managing our costs, while our successful three year Greenfield programme came to an end in 2012, we do not currently plan on initiating another major cost saving programme to replace it. Instead, we will be implementing a range of additional and targeted measures, which will be carefully coordinated, to preserve and progress the considerable savings made under the Greenfield programme. The overall goal of this continued focus on cost control is to protect our operating margin while delivering growth through the measures outlined above. The most significant legacy issue that remains unresolved relates to two of our pension schemes. This is an issue which I feel is worth outlining in some detail given its significance. Pension We are disappointed that the attempts to find a solution to the pension problems facing us have not yet been successful. The great majority of our staff (other than pilots) are members of the Irish Airlines Superannuation Scheme ( IASS ). This pension scheme is unusual for a number of reasons. Firstly, it is a multi-employer scheme, with the principal other employers being the Dublin Airport Authority ( DAA ) and Shannon Airport Authority ( SAA ). Secondly, the contribution rate is fixed and cannot be changed without the agreement of employer and employee. For this reason, from the employer s perspective, it is a defined contribution scheme. However, under the trust deed and rules, the pension scheme targets benefits linked to final salary and length of service. The funding rate and investment performance is inadequate to support these target benefits and, as a result, a substantial deficit has arisen in the scheme. On 31 December 2012, this deficit was estimated to be some 779 million on the minimum funding standard basis. Mathematically, approximately 65% of the schemes liabilities are associated with current or former members of Aer Lingus staff. We strongly believe that the current funding position of the IASS is unsustainable and that it must now be addressed by the IASS trustees. The deficit in the scheme is so significant that, had the IASS been wound up on 31 December 2012, current employees and former employees who are not yet in receipt of a pension (deferred members) would have received approximately 5% of their expected IASS pension benefits. I believe that such an outcome would be extremely damaging for the Group, its employees and shareholders. We believe that, as a matter of law, Aer Lingus has no legal responsibility for the deficit in the IASS, and this has been our consistent position. It was confirmed specifically at the time of our IPO in That said, the likely loss of future pensions is a major industrial relations issue facing the business and it will have to be addressed if we are to move Aer Lingus forward. In this context, we are attempting to assist in the achievement of a fair outcome that will improve the pension prospects of affected IASS members in a way that will balance the interests of all parties, including shareholders and we are seeking to achieve this in a manner that reflects our firm view that we have no legal obligation for the deficit in the scheme. The key elements of our proposal are as follows:

8 Firstly, the IASS would be closed to new members and benefit accrual for members would cease. The IASS investment policy would be changed by the trustees to reduce risk by investing in fixed income products whose cashflows broadly match the IASS obligations. This approach would result in higher pensions than on a wind-up of the IASS, but is at the sole discretion of the IASS trustees. Aer Lingus would make no financial contribution to the IASS (beyond its regular contributions), which in any event would be discontinued when the IASS closes to future accrual. Secondly, Aer Lingus would establish new defined contribution arrangements on competitive terms in respect of the future service of its own employees. Subject to the uptake of Aer Lingus employees, the overall increase in employment costs attributable to the new DC Scheme is not expected to be significant, and Thirdly, Aer Lingus is prepared to put in place arrangements to improve the future pensions of affected IASS members provided the balance between costs and benefits is in the interests of all parties, including shareholders. In particular, we are seeking employment cost stability over the coming years. If put in place, any such arrangements are likely to include a once off initial contribution by Aer Lingus to any new DC funds of those affected IASS members, and such contributions would favour those closer to retirement, or on lower incomes. However, the extent to which Aer Lingus would be prepared to make a contribution would be linked to the strength of the commitment of staff to stabilising employment costs. In combination, these three elements have the potential to provide fair and sustainable pension benefits for affected IASS members significantly beyond the level of coverage which the IASS current funding status can sustain. The discussions which were held during 2012 at the LRC, and which subsequently involved the Labour Court, staff representatives and a technical group of actuaries and lawyers are complex and involve many parties. There can be no certainty that agreement would be reached between all parties involved. It is also clear that our requirement that Aer Lingus must be in a position to present a business case to shareholders, in terms of employment cost stability, to justify any contribution to be made to new pension arrangements has proved deeply controversial with staff representatives. We have made it clear to all parties that we will seek shareholder approval of any agreement that may be reached. In the meantime we continue to meet our legal obligations, which are to pay the monthly employer contributions to the scheme. Aer Lingus pilots are members of the Irish Airlines (Pilots) Superannuation Scheme ( the Pilots Scheme ). On 31 December 2012 the Pilots Scheme was estimated to have a minimum funding standard deficit of approximately 218 million. As with the IASS, the liability of Aer Lingus to contribute to the Pilots Scheme is fixed at the current contribution rates and, accordingly Aer Lingus has neither a constructive nor a legal obligation to increase its rate of contributions to the Pilots Scheme, even if the scheme is found to have insufficient funds to pay all members the benefits relating to their current or past service. Aer Lingus has recently agreed to engage in a process of discussion with parties affected by the funding shortfall in the Pilots Scheme in an attempt to assist in the achievement of a fair outcome that improves the pension prospects of affected Pilots Scheme members in a way that will balance the interests of all parties, including shareholders and employees. As is the case with the IASS, the process of discussion will be complex and involve many parties. There can be no certainty that agreement will be reached between all parties involved. Notwithstanding Aer Lingus involvement in the two sets of discussions outlined above, it remains the Group s position, supported by firm legal advice, that it has no legal or constructive obligation in respect of either the IASS or the Pilots Schemes, other than to continue to pay the fixed rate contributions as set out in the trust deeds of these schemes. Current market dynamics and likely impact on performance Macroeconomic trading conditions in several of our key markets, particularly the market between the UK and Ireland, remain challenging. Nevertheless we are confident that, with the participation of Aer Lingus Regional, we will once more outperform this market in In 2012, our total share of all traffic from the three main Irish airports was 39% (2011: 38%). Including Aer Lingus Regional services, our market share was 43% (2011: 41%). London as a market in its own right showed some anomalies both during and after the Olympic Games. Increased capacity deployment on Dublin to London sectors has and will increase seat capacity above current demand. Aer Lingus shuttle like product with almost hourly departures remains the product of choice on these routes and we will continue to manage capacity and price according to demand. In 2012 and including Aer Lingus Regional services, our share of the Dublin to London market was 46% (2011: 45%). In 2012, our market share of all transatlantic traffic from Dublin and Shannon airports was 53% (2011: 49%). Our North Atlantic performance has attracted several other air carriers to announce new transatlantic services from Dublin and Shannon to the US commencing in Summer The new United Airlines flight from Chicago to Shannon during the Summer and the United Airlines service from Dublin to Washington will, however, carry the Aer Lingus code and will be available to our customers via the Aer Lingus website. Generally, we are responding to these competitive developments in the Irish market with a renewed focus on inbound markets and inbound traffic on the other end of ex-ireland routes, principally in Germany and the Benelux region on short haul services and the US on long haul services. We are particularly pleased with our momentum on long haul whereby we now generate approximately 60% of our total long haul bookings from the US. This has the added advantage of reducing our annual requirement to purchase US dollars to meet our fuel costs. In addition, we will actively manage our network and address under-performing routes as well as tactically managing capacity where demand conditions prevail so as to maximise revenue and yield-per-seat performance. At 31 December 2012, the number of passengers booked on our services was ahead of passengers booked at the same time in From a cost perspective, non-controllable cost inflation will continue to be a challenge. Forward fuel price pressures have eased somewhat and we are hopeful that there will be no significant further increases in In any case, we have good protection for the first half of 2013 in particular as a result of our fuel hedging programme. Airport charges are likely to significantly increase in On a steady state basis (i.e. assuming the same passenger/movement volumes as 2012) airport price increases, notably at Dublin, London Heathrow, Spanish and Italian airports, are expected to add approximately 15.0 million to our costs in While some of this inflation may be offset by positive yield growth, we nonetheless expect that it will be difficult to fully pass through fuel cost and airport charge inflation to passengers, particularly with the implementation of austerity policies by several European governments and the subsequent expected knock-on impact on customers discretionary income in We have now reached the third anniversary of our Greenfield cost savings agreement with our unions. In the absence of a deal to resolve the pension issue, which we believe will deliver continued pay restraint, we are likely to face pressure for wage increases in As I previously noted, we will be implementing a range of targeted and co-ordinated cost reduction measures across our business to preserve, and most importantly progress, the savings generated through our Greenfield programme to ensure our operating margin remains amongst the highest of our European peers.

9 Ryanair offer Ryanair indicated its intention to bid for the Group in June and launched a formal offer for Aer Lingus on 17 July The Board of Aer Lingus unanimously recommended that shareholders reject that Ryanair offer by taking no action and wrote to shareholders on 31 July and 24 August 2012, respectively, to set out in detail its reasons for rejecting that offer. On 29 August, the European Commission announced its decision to open an investigation into the competition issues raised by Ryanair s latest offer to acquire control of Aer Lingus, causing Ryanair s offer to lapse. This investigation is currently ongoing and we remain subject to certain provisions of the Irish Takeover Code in the interim. For this reason, there is no outlook statement in this preliminary announcement of our 2012 results. A decision is expected from the European Commission in the first quarter of In addition, the UK Competition Commission also continues to investigate the effects of Ryanair s minority shareholding in Aer Lingus and on 13 December 2012, the UK Court of Appeal rejected Ryanair s attempt to halt the UK Competition Commission s investigation into Ryanair s minority shareholding in Aer Lingus. Balance sheet strength Aer Lingus continues to benefit from significant balance sheet strength. Gross cash balances as at 31 December 2012 were million, an increase of 13.7 million over the year. All Group borrowings are associated with aircraft asset purchases. The Aer Lingus debt maturity profile is spread over several years to In addition to this substantial financial strength, Aer Lingus owns significant assets which are not recognised on its balance sheet, including an attractive slot portfolio at London Heathrow, JFK and Dublin airports, as well as a globally recognised brand. Conclusion Aer Lingus has changed significantly since the loss making years of 2008 and 2009 but there are still many opportunities to be seized and some challenges to be addressed. We are faced with some headwinds moving into 2013, not least from inflation in non-controllable costs, particularly airport charges, but also from continuing weakness in our primary markets (i.e. Ireland and the UK). However, we leave 2012 with good momentum in our long haul business. In 2013, management will remain focused on creating demonstrable value for our shareholders. We will continue to explore commercial opportunities to grow our business profitability and build on recent accomplishments such as the Virgin Atlantic wet lease agreement and the extension of the successful Aer Lingus Regional franchise agreement. In addition, we cannot afford to let up in our pursuit of cost reduction measures to ensure the continuing competiveness and flexibility of the Group in 2013 and subsequent years. We remain focussed on delivering value to our shareholders. Over the last three years we have turned Aer Lingus around, instituted a new annual dividend policy and generated total shareholder return in the upper quarter of the European industry. With a view to the future, and with shareholder consent, we have embarked on a process to reduce the Group s capital which, if court approval can be obtained, will give us the ability to maintain or, if appropriate, enhance our distributions to shareholders. I would like to thank our staff and management team for their hard work in 2012 and their continued focus in In addition, I would like to thank our shareholders for their support of our efforts since 2009 and in future years. Christoph Mueller, Chief Executive Officer Full year 2012 financial review Introduction Aer Lingus delivered an operating profit, before net exceptional items, of 69.1 million for 2012 (2011: profit of 49.1 million). This excellent operating result builds on the strong performance achieved under the successful turnaround strategy for the Group and represents the third consecutive year of operating profitability since From a loss before exceptional items of 81.0 million in 2009, we have successively reported operating profits, before exceptional items, of 52.5 million in 2010, 49.1 million in 2011 and now 69.1 million for The 2012 operating result was achieved against a difficult economic backdrop, characterised by weak demand in our key Irish and UK markets and also significant inflationary pressure on non-controllable costs, principally fuel and airport charges. In addition to an effective performance on revenue and cost control, the 2012 full year result has also benefitted from the non-recurrence of operational disruption in Q which was estimated to have cost approximately 15 million in lost revenue and additional costs. Net profit before tax of 40.6 million for 2012 was 43.8 million, or 51.9%, below the figure recorded for However, the decrease in pre-tax profit can be attributed to exceptional items and is not reflective of the underlying profitability of the business. In 2011, exceptional gains were recorded on the surrender of the Group s leasehold interest in the Head Office Building at Dublin Airport to DAA plc and also from releases of amounts from the cash flow hedging reserve relating to foreign currency hedges on long haul aircraft orders that became surplus to requirements. In 2012, exceptional items include costs associated with restructuring our Shannon aircraft maintenance operations and legal and professional fees associated with Ryanair Holding plc s third takeover offer for the Group which was formally made on 17 July Passenger revenue % Increase/ (decrease) Passenger fare revenue ( million) 1, , % Passenger numbers ( 000s) (excluding Aer Lingus Regional and UA codeshare) 9,653 9, % ASKs (million) 18,685 18, % Load Factor 77.7% 75.6% 2.1 pts Yield per passenger ( ) % Fare revenue per seat ( ) %

10 Passenger fare revenue for the year was 8.6% ahead of 2011 driven by higher passenger numbers (+1.5%), an increase in load factor (+2.1 pts), and increased yield (+7.0%). Capacity (measured by ASKs) increased by just 0.5%. The positive figures fully reflect the success of our current strategy of carefully managing capacity deployment across the network, focusing on higher yielding, time sensitive demand to drive increases in yield and fare revenue per seat. Short haul Short haul performance % Increase/ (decrease) Short haul passenger Revenue ( million) % Short haul passengers ( 000s) (excluding Aer Lingus Regional) 8,674 8, % Load Factor 75.4% 74.6% 0.8 pts Yield per passenger ( ) % Fare revenue per seat ( ) % Short haul fare revenue increased by 4.5% in 2012 to million (2011: 781.0). The positive revenue performance was driven by a 0.7% increase in passenger numbers (excluding Aer Lingus Regional), a 0.8 pt increase in load factor and a 3.9% increase in fare revenue per seat. Yield per short haul passenger increased by 3.8% and continues a positive trend in yield growth on short haul over the past three financial years Growth vs Growth vs Growth vs. prior year % prior year % prior year % Short haul yield per passenger % % % Short haul capacity, measured by ASKs, decreased by 0.4% in 2012, with the decrease attributed to more effective network management as opposed to cancellation of services (the decrease of 0.4% would actually have been greater were it not for the impact of the industrial dispute on Q on the overall 2011 comparatives). Two A319 aircraft were introduced to the fleet in Q to replace two higher capacity A320 aircraft, one of which exited in June 2012 and the second in August Short haul capacity has been proactively managed over the past three years in line with our strategy to better match network capacity with underlying market demand. Short haul capacity deployment 2010 Capacity growth/(decline) year on year % (0.4%) 2.6% (7.8%) Overall, time sensitive and business orientated routes continued to perform well in Robust trading was noted across central European routes such as Spain, Italy, Portugal and Germany offsetting some weakness in the UK market. In Q3 2012, we experienced particularly weak trading on London routes as a result of the Olympic Games. For the duration of the Olympic Games, there was a distinct lack of business demand on such routes. However traditional key leisure routes such as Spain, Portugal and Italy performed strongly during the holiday months of Q3, somewhat offsetting this negative impact. In 2013, we plan to introduce two further A319 aircraft into the mainline short haul fleet to replace two A320 aircraft. This development will reduce overall capacity across the fleet. Long haul Long haul performance % Increase/ (decrease) Long haul passenger Revenue ( million) % Long haul passengers ( 000s) (excluding UA codeshare) % Load Factor 82.5% 77.6% 4.9 pts Yield per passenger ( ) % Fare revenue per seat ( ) % Under the revised Group strategy implemented from 2009, the long haul business of Aer Lingus was fundamentally changed with capacity significantly cut by terminating under-performing routes and re-focusing long haul services on key routes where significant benefits could be realised from partnerships and interlining with other carriers. The overall aim of this approach was to restore long haul services to profitability and this goal has been achieved. Long haul capacity deployment 2010 Capacity growth/(decline) year on year % 2.3% 0.0% (24.1%) Total long haul revenue in 2012 increased by 19.7% compared to The excellent performance reflected strong market demand which saw passenger numbers increase by 9.1%, load factor increase by 4.9 pts and yield per passenger increase by 9.6%. The strong performance was achieved alongside an increase in capacity of 2.3% in the year. The increase in capacity can be partly attributed to the industrial action which disrupted operations in Q As noted with short haul, we have successfully achieved strong yield growth on long haul services over each of the last three financial years. Demand continues to be strong and we will deploy the returning aircraft from the enhanced codeshare with United Airlines on our own long haul fleet this summer Growth vs Growth vs Growth vs. prior year % prior year % prior year % Long haul yield per passenger % % % Business class passengers increased by 10.4% and accounted for approximately 22% of total long haul revenue in 2012 (2011: 22%). The load factor achieved in business class was 65% (2011: 61%). Our continued ability to attract business class passengers reflects our focus on improving the business class experience on long haul services and the connectivity provided to business travellers though our open network architecture and partnerships with connecting airlines in US, Europe and Middle East.